Cost-effective development of small discoveries on the Norwegian continental shelf

Abstract

Today, the oil and gas sector remains Norway’s largest measured in terms of value added, government revenues, investments and export value. The Norwegian continental shelf is a maturing production area, which means that giant oil and gas fields are depleting and only relatively small discoveries are being made. The future value creation from the hydrocarbon production depends on the approaches used to develop these smaller discoveries.

The overarching goal of this thesis has been to address solutions related to the cost-efficient development of small discoveries on the Norwegian continental shelf. We proposed methods that exploit managerial flexibilities and developed models to account for their economic effect. All the papers included in this thesis were motivated by the real-life challenges provided by our industry partner, OKEA ASA. Our goal has been to use realistic input and solve these challenges by using instruments that are not typically used by corporate managers.

Addressing value of information and flexibility, we developed methodology that allows to optimize decisions under uncertainty associated with both technical and market conditions of the field development process. We demonstrate how flexibility in field and contract design can create additional value. With each paper we aimed to construct modelling frameworks that are applicable in practice and produce results that can be easily communicated to the industry.

We propose three different strategies that contribute to this overarching goal: Papers I and II discuss the staged development strategy, Paper III analyzes risk and benefit sharing agreements between field operators and their contractors, while Paper IV proposes sequential development of two licenses with an option to switch. These methods have a potential to become one of new approaches in a standard tool set of oil and gas companies, helping them to optimize the project development process and ensure economic viability and cost reduction amid tightening environmental regulations and increasing uncertainty.